By Jamie McGeever

ORLANDO, Florida (Reuters) -TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

World markets got the week off to a subdued start on Monday, although the Nasdaq nudged a new high, as a light earnings and data calendar allowed investors to digest the latest tariff-related news and look ahead to Tuesday’s U.S. inflation figures.

More on that below. In my column today I look at the blizzard of U.S. labor market data – often conflicting, sometimes distorted – and ask which number best shines a light through the fog. Could it now be continuing jobless claims?

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. Fed structure may be in flux, not just rates: Mike Dolan 2. Trump’s Fed pick wanted to upend its protection frompolitics 3. Trump opens door to sales of version of Nvidia’snext-gen AI chips in China 4. Debt market jitters signal caution for high-flyingstocks 5. China’s July factory-gate prices miss forecast,deflation concerns persist

Today’s Key Market Moves

* FX: Dollar index rises 0.4%. Bitcoin hits one-month highabove $122k to close in on record peak, but ends day lower. * STOCKS: Nasdaq and Australian stocks hit new highs. ButWall Street’s big three indices fall 0.3-0.5%. * SHARES/SECTORS: Nvidia hits new record but ends lower,Intel gains 3.6% and TKO spikes 10%. The S&P 500 energy indexslides 0.8%. * BONDS: Treasury yields barely move more than 1 bp acrossthe curve. One of the quietest sessions in a while. * COMMODITIES: Gold slips 1.4%, soybean futures rise 2.5%- both related to tariff-related comments from Trump.

Tariffs, CPI nerves soften sentiment

Wall Street closed lower on Monday, even as the Nasdaq touched fresh highs, with the latest news related to U.S. President Donald Trump’s tariff war generally sapping risk appetite rather than strengthening it.

Trump signed an executive order on Monday extending the China tariff deadline for another 90 days, with only hours to go before U.S. tariffs on Chinese goods were due to snap back to triple-digit rates.

This came after a U.S. official told Reuters over the weekend that chip companies Nvidia and Advanced Micro Devices have agreed to give the U.S. government 15% of revenue from sales of advanced chips to China.

The news was surprising and confusing.

“It’s wild,” said Geoff Gertz, a senior fellow at Center for New American Security, an independent think tank in Washington, D.C. “Either selling H20 chips to China is a national security risk, in which case we shouldn’t be doing it to begin with, or it’s not a national security risk, in which case, why are we putting this extra penalty on the sale?”

A rise for Nvidia shares this week would mark a record-breaking 12 consecutive weekly gains. The stock now accounts for 8% of the entire S&P 500 market cap, the biggest weight of any individual stock in the wider index since the data began in 1981, according to Apollo’s Torsten Slok.

The so-called “Magnificent Seven” megacap stocks, of which Nvidia is one, now account for a record 35.3% of the S&P 500’s total market cap. The top 10 stocks make up a record 40% of the index’s market cap.

This concentration risk is nothing new, of course, but the steady advance deeper into uncharted territory is bound to unnerve some investors.

Meanwhile, U.S.-Brazil relations show no sign of improving. Brazil’s Finance Minister Fernando Haddad said on Monday that his virtual meeting with U.S. Treasury Secretary Scott Bessent scheduled for later this week has been canceled, a blow to Brasilia as it attempts to get the 50% tariff on many Brazilian exports to the U.S. reduced.

Speculation continues to swirl around who Trump will nominate to replace Fed chair Jerome Powell, whose term officially ends next May. As of Monday, no fewer than eight names appear to be under consideration, according to media reports.

The main economic indicators on Monday were from China, which showed producer prices fell more than expected in July and no change in consumer prices. Deflation still stalks China, in contrast to the U.S. where tariffs are putting upward pressure on prices.

Attention on Tuesday turns to Australia, where the central bank is expected to reduce its cash rate by a quarter point to 3.60%, and then to CPI inflation figures for July from the U.S.

Which data point may shine light through U.S. jobs fog?

Amid a blizzard of contradictory signals, it’s becoming increasingly difficult to get any visibility on the U.S. labor market. But of all the numbers that feed into the all-important unemployment rate, the one worth paying most attention to may be continuing weekly jobless claims.

Federal Reserve Chair Jerome Powell has said that while he and his colleagues look at the “totality” of the data, the best gauge of the health of the labor market is the unemployment rate. That’s currently 4.2%, low by historical standards, and consistent with an economy operating at full employment.

But it is a lagging indicator, meaning that once it starts to rise sharply, the economy will probably already be in a very precarious position. And it is also being depressed by labor demand and supply factors unique to the U.S.’s current high tariff, low immigration era.

LOW FIRE, LOW HIRE

Economic growth is slowing. Broadly speaking, it is running at an annual rate of just over 1%, half the pace seen in the last few years. Unsurprisingly, firms’ hiring is slowing too.

The latest Job Openings and Labor Turnover Survey, or JOLTS, showed hiring in June was the weakest in a year, while July’s nonfarm payrolls report and previous months’ revisions were so disappointing that President Donald Trump fired the head of the agency responsible for collecting the data.

But the unemployment rate isn’t rising, largely because firms aren’t firing workers. Why? Perhaps because they are banking on tariff and inflation uncertainty lifting in the second half of the year. It’s also possible that firms are still scared from the post-pandemic labor shortages.

Whatever the reason, the pace of layoffs simply has not picked up, the monthly JOLTS surveys show. Layoffs in June totaled 1.6 million, below the averages of the last one, two and three years.

Meanwhile, lower immigration, increased deportations, and fewer people re-entering the labor force are offsetting weak hiring, thus keeping a lid on the unemployment rate. The labor force participation rate in July was 62.2%, the lowest since November 2022.

And what about weekly jobless claims, another key variable in the labor market picture? In previous slowdowns, rising layoffs would be reflected in a spike in the number of people claiming unemployment benefits for the first time.

That’s not happening either. Last week’s 226,000 initial claims were right at the average for the past year, and only a few thousand higher than the averages over the past two and three years.

“It’s a low fire, low hire economy,” notes Oscar Munoz, U.S. rates strategist at TD Securities.

REGULAR CHECK-UP

One high-frequency number that has gone under the radar, but which merits more attention is continuing jobless claims, which measures the number of workers continuing to file for unemployment benefits after losing their jobs. Rising continued claims suggest people actively looking for a job are struggling to get one, a sign that the labor market could be softening.

That figure spiked last week to 1.97 million, the highest since November 2021, which in theory should put upward pressure on the unemployment rate.

Using the ‘stock’ versus ‘flow’ analogy, continuing claims are the ‘stock,’ and weekly claims are the ‘flow’. Everyone will have their own view on what’s more important, but right now initial claims are offering no guidance while continuing claims are pointing to softening in the job market.

Fed officials are on alert, but what would move them to cut rates?

Munoz and his colleagues at TD Securities estimate that continuing claims of around 2.2 million would be consistent with an unemployment rate of 4.5%, a level of joblessness most economists agree would prompt the Fed to trim rates.

That’s also the year-end unemployment rate in the Fed’s last economic projections from June, a set of forecasts which also penciled in 50 bps of easing by December.

An unemployment rate of 4.4% would probably tip the balance on the Federal Open Market Committee, while 4.3% would make it a much closer call, perhaps a coin toss.

Further muddying the picture, other indicators suggest the labor market is ticking along nicely. July’s payrolls report showed that average hourly earnings last month rose at a 3.9% annual rate, consistent with the level seen in the past year. And the average number of hours worked was 34.3 hours, right at the mean for the past two years.

These numbers and the JOLTS data are released monthly, and there will be one more of each before the Fed’s September 16-17 policy meeting.

But if the increased focus on the unemployment rate means investors want a more regular labor market temperature check, they should keep a close eye on weekly continuing claims.

What could move markets tomorrow?

* Australia interest rate decision * India CPI inflation (July) * UK employment, earnings (July) * Germany ZEW sentiment index (August) * Brazil inflation (July) * U.S. CPI inflation (July) * U.S. federal budget data (July) * U.S. Fed officials on the stump: Richmond Fed PresidentThomas Barkin, Kansas City Fed President Jeffrey Schmid

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Jamie McGeever; Editing by Nia Williams)